TRAI issues consultation paper on regulatory sandbox framework to encourage innovation

The digital communication industry is a key driver of economic growth and development in India, contributing significantly to the country’s GDP and employment. With the rapid advancement of technology and the emergence of new players in the market, there is an increasing need to promote innovation and entrepreneurship in the sector. Promoting innovation in the digital market is crucial for economic growth because it leads to the development of new and improved products and services, increased productivity and efficiency, and the creation of new industries and job opportunities. It drives competitiveness, higher profits, and investment in the economy. The digital market is transforming the way we live and work, and encouraging innovation in this sector is necessary for entrepreneurs, start-ups, and SMEs to compete with established players, stimulate economic growth and create new jobs and opportunities.

Continuous innovations are happening which at times may not fit in with the existing licensing and regulatory framework. Many a times testing innovations may require access to live customers and real time data. The conventional approach of doing Pilots or conducting lab tests which neither permit any exemption from regulatory and licensing requirements nor provide access to live telecom resources and real time data may not fulfill the purpose in such cases.

In addition to use cases designed and developed in India, use cases that are designed and developed in the western world may be required to be tested again in India. Such product or service may not work in India due to the massive scale of the Indian market, cost-related constraints, diverse socio-economic profiles, and other factors.

Therefore, there is a need to have a robust, well-defined, and well-oiled framework for testing innovations that can assure a high probability of commercial success in the country after successful deployments in test environment. Testing innovations under real-world conditions in India can help identify potential issues and adapt the use cases to meet the unique needs of the Indian market, which can ultimately lead to greater success in terms of adoption and profitability. Additionally, a robust testing framework can also help attract investment and create opportunities for Indian companies to lead innovation in the digital communication industry.

One way to achieve this is through the implementation of a regulatory/licensing sandboxing framework that allows companies to test and experiment with new products and services in a controlled environment where they have access to live environment and real time data but may not be required to comply with the full range of regulatory requirements. A sandboxing framework is an alternative and additional approach to the existing ways (like carrying out pilots) for testing innovations. While some innovations may only require a pilot approach, others may require access to live data and subscribers, which can be achieved through a sandboxing framework. Further, such sandboxes can be of great help to small entrepreneurs. A robust and well-defined regulation framework that provides access to resources under real-time conditions for testing innovative products and services in digital communication sector is essential especially for the success of 5G/6G and for enterprise segment use cases. Supporting innovation in the digital communication industry can help in ensuring compliance and identifying potential issues with new products and services before commercial deployment.

Testing new ideas in the digital communication industry can be significantly different from testing ideas in other fields due to various reasons, such as:

Scale: Digital communication products and services are typically deployed at a large scale, serving millions of customers simultaneously. Therefore, testing these products and services for their scalability and reliability is critical.

Real-world conditions: Digital communication products and services are often used in complex real-world conditions, which can be difficult to simulate accurately. Factors such as varying network conditions, different user profiles, and diverse use cases make it challenging to test these products and services comprehensively.

Regulatory compliance: The digital communication industry, being a strategic sector, is tightly regulated, and products and services must comply with various rules and regulations before they can be launched commercially.

High cost of failures: Innovation in the digital communication industry is critical for growth and staying competitive, and failure to innovate can indeed be a costly affair. This industry is highly capital-intensive, with high costs involved in developing and deploying new technologies and services. Therefore, any failure to commercialize the service after testing effectively, due to regulatory hurdles, can result in significant financial losses for the companies involved.

Inter Sectoral Collaboration: Many of 5G/6G use cases will require close co-ordination with regulators and other stakeholders like Municipalities, Power Distribution Companies, State and Central Ministries, airports, ports, metro trains, Smart City Authorities etc.

As mentioned earlier, one strategy for overcoming these difficulties is to do pilot studies, laboratory testing, etc. Several 5G use cases through pilot projects were tested by TSPs. Pilot projects on “Use of Street Furniture for Small Cells and Aerial Fiber Deployment” were also carried out by the Authority. Additionally, DoT has recently developed a 5G Test Bed for entrepreneurs to evaluate 5G use cases. Moreover, the establishment of Innovation Labs and Centers of Excellence (CoE) has been announced in the recent budget to encourage the testing of cutting-edge technologies like Artificial Intelligence (AI) and Internet of Things (IoT). Testing settings like pilots, test beds, labs, CoE, etc., only provide simulated or limited access to telecom resources. This might not be adequate to recognize every potential problem and difficulty that might appear when the goods or services are used extensively in a real-world setting.

When testing new technology use cases, collaboration with other sectors such as education, health, transportation, airport, and ports may be necessary to comprehend and meet the specific difficulties and requirements of each area. However, when working across industries, coordination with different stakeholders can be difficult as they may have diverse priorities, rules, and deadlines. The technical needs of each sector must be met, making collaboration a difficult and time-consuming process. Furthermore, the engagement of other sectors may necessitate additional funding and resources, which will complicate the process further. Despite these hurdles, cross-sector cooperation is necessary to maximize the potential of new use cases and promote innovation.

However, cross sectoral collaboration for testing innovative products and services requires a lot of time, effort and resources and may ultimately discourage small companies from innovating. A sandbox framework can overcome this difficulty by providing a common platform for interacting with stakeholders of other sectors while providing access to live network and real time data of large number of participating customers. A common platform would provide a unified space for stakeholders to exchange ideas, feedback, and requirements, which could help to streamline the testing process and improve the overall quality of the product. This approach could also help to identify potential issues and challenges early on, reducing the risk of costly mistakes and delays. By bringing together stakeholders from different sectors, a sandbox framework with a common platform could help to unlock new use cases and applications for new technologies like 5G, 6G, AI, ML etc. and can help in driving innovation and growth across various industries.

A sandbox can also provide a platform for intra sector collaboration between different stakeholders in the digital communication industry, including Telecom Service Providers (TSPs), equipment manufacturers, academicians, and developers, which can lead to the discovery of new use cases and innovative solutions.

Sandboxing framework doesn’t require creation of elaborate and differentiated testing infrastructure. Sandboxing tests are supposed to be performed at the place under the control of product or service owner like TSP and uses the existing infrastructure. The control and ownership of testing processes in principle remains with the owner. However, it is slightly adapted to the extent to create an oversight mechanism for licensor/regulator. At times, due to participation of large number of customers in live environment, testing process may need prior approval.

From the aforesaid, it can be inferred that regulatory sandbox approach can allow companies to experiment and innovate with new technologies and business models, with access to large customer base in real time conditions while ensuring that risks to businesses and consumers are managed and mitigated. Therefore, while the digital communication industry may have an established ecosystem for innovation, a sandboxing framework can be a complementary approach which offers far richer testing environment.

Having said this, it must also be brought out that regulatory sandbox approach can also have some risks and limitations. These risks and how they can be mitigated are explained below:

• Innovators may lose some flexibility and time in going through the sandbox process. However, having a definite timeframe for
  Regulatory Sandbox approval at each stage can mitigate this risk.
• Case-by-case bespoke authorizations and regulatory relaxations can involve time and discretional judgements. This risk may be addressed by handling applications in a transparent manner and following well-defined principles in decision-making.
• Post-sandbox testing, a successful experimenter may still require regulatory approvals before the product/services/technology can
  be permitted for wider application. This issue can be handled by defining time frames for post sandbox testing.
• There is potential for some legal issues coming up, such as those relating to consumer losses in case of failed experimentation.

Such instances may not have much legal ground if the Regulatory Sandbox framework and processes are transparent and have clear entry and exit criteria. Upfront clarity that liability for customer or business risks shall devolve on the entity entering the Regulatory Sandbox will be important to mitigate such risks.

It can be concluded that though testing in sandbox environment may have some risks and limitations, its benefits far outweigh it. However, it is important to ensure that while framing directions for sandboxing, the framework is focused on safeguarding consumers who are participating in sandboxing tests and not place excessive restrictions on sandboxing test itself.

Sandboxing framework in other sectors
Sandboxing regulations are most prevalent in the financial sector, particularly in the areas of financial technology (FinTech) and banking. This is because these industries deal with sensitive financial data and
transactions, and the risk of fraud, cyberattacks, and financial instability is high. Regulators in financial sector viz RBI1 and SEBI2 have already issued guidelines for conducting testing of innovative financial products under the Regulatory Sandbox framework.

In the FinTech industry, sandboxing regulations are used to allow startups and new entrants to test innovative financial products and services in a controlled environment before they are released to the market. This helps to reduce the risks associated with untested technology and provides a safe space for experimentation.

In the banking industry, sandboxing regulations are used to test new financial services and products, such as mobile banking applications, digital wallets, and blockchain-based solutions. The sandboxing approach allows banks to test these products and services without risking the security of their existing systems and customers.

Other sectors where sandboxing regulations may be prevalent include digital communication, healthcare, energy, and transportation, where new technologies and services may pose significant risks if not tested properly. However, the prevalence of sandboxing regulations in these sectors may vary depending on the country and the specific regulatory framework in place.

CT Bureau